Markets in recent days have accelerated their expectations for rates, but even that may not be enough.
Recent indicators show the Federal Reserve may have to raise interest rates more than expected to tame inflation, leading to a higher likelihood of recession, according to multiple Wall Street research firms and some economists. Markets in recent days have accelerated their expectations for rates, pushing the expected range to 5.25%-5.5%, or about three-quarters of a point higher than the current level. But even that may not be enough.
The strength in the January activity and inflation data suggests that the Fed might have to hike considerably further to find the point of pain for the consumer. Right-tail risks to the terminal rate are growing." Indeed, recent indicators show that — after abating late last year — inflation is back. The consumer price index increased 0.5% in January and is up 6.4% from a year ago, while the producer price index jumped 0.7% for the month and 6% annually.
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